Commercial real estate execs eye multifamily, retail sectors for growth, says KPMG report

Propelled by increasing economic optimism, commercial real estate industry executives say geographic expansion will be a key focus over the coming year, according to a recent survey conducted by KPMG LLP, the audit, tax and advisory firm.

In the 2013 KPMG Commercial Real Estate Outlook Survey, 58 percent of executives said they expect their company to increase spending most on geographic expansion, up from 21 percent in last year’s survey and 11 percent from KPMG’s 2011 survey.

In the United States, executives most frequently cited the Southwest (45 percent) and the Northeast (36 percent) regions as the best commercial real estate investment opportunities. Latin America (32 percent) and Asia Pacific (21 percent) were identified as the top real estate investment opportunities outside of the United States.

“Market expansion is an important focus for commercial real estate executives as they strive to grow the top line,” said Greg Williams, national leader of KPMG LLP’s Real Estate practice. “Domestically, the Southwest and Northeast are attractive markets because they are experiencing higher job and economic growth and thus have experienced a faster recovery, with property prices in select sub-markets within these regions at or above pre-recession levels.”

Development Trends

When asked how much new development is expected to commence in the United States in 2014, multi-family was identified as the top sector with 43 percent of respondents expecting “a significant amount” to launch, down from 51 percent in last year’s survey which significantly outpaced other asset classes. Nineteen percent expect a significant amount of development in retail in 2014, up from five percent in last year’s survey, while 18 percent expect a significant amount of development in hospitality, up from seven percent in last year’s survey.

“Multi-family is still the darling, but all sectors are expected to see an increase in new development as access to financing has improved for these projects, and executives are more optimistic about the economy’s growth prospects,” said Williams.

Seventy-two percent of respondents expect the U.S. economy to either moderately or significantly improve over the next year, up from 58 percent in last year’s survey. Additionally, 84 percent said their companies’ revenue increased over the past year, while the same percentage expects it to increase next year as well.

Revenue Drivers

Acquisitions (53 percent), improving real estate fundamentals (44 percent), and geographic expansion (38 percent) were selected as the top three drivers for revenue growth of the respondents’ companies over the next three years. Class A assets in primary markets (48 percent) and development opportunities (25 percent) were identified by commercial real estate executives as the top assets they would be in the market to acquire in the next year.

“While some markets are still stabilizing post-recession, there’s a flight to safety and security, and class A assets in primary markets continue to be the surest bets,” said Phil Marra, Northeast leader of KPMG’s Real Estate practice. “In some cases, however, we are seeing fresh approaches, such as new REITs forming to address opportunities in the single-family-home rental market.”

Twenty-five percent of those surveyed said their organization is finding an ample supply of quality properties that can deliver a sufficient return at reasonable prices, with another 60 percent saying their organization is not able to find quality properties at reasonable prices.

“Given that pricing is critical to producing sufficient yields, executives are being very selective as the availability of distressed assets has slowed,” added Marra.

Pricing pressures (32 percent), lack of customer demand (30 percent), and regulatory and legislative pressure (24 percent) were cited as the most significant growth barriers over the next year.

Political and Regulatory Uncertainty

When asked to identify the issues posing the biggest threat to business models, 40 percent of executives indicated political and regulatory uncertainty as their top concern. Thirty-three percent of respondents said they did not know how evolving Federal tax policy would impact their organization’s business strategy, while 27 percent said it would decrease their capital investment. Additionally, 67 percent said that their company was only somewhat prepared to proactively manage the impact of public policy and regulatory changes.

“The political and regulatory environment continues to pose challenges and uncertainty,” said Williams. “To maximize their success, organizations should assess how potential regulations and tax policy changes will impact their businesses, and proactively manage those impacts.”

The KPMG Commercial Real Estate Outlook Survey

The KPMG survey was completed in spring of 2013 and reflects the responses of 100 senior executives in the commercial real estate industry. Based on revenue in the most recent fiscal year, 8 percent of respondents work for companies with annual revenues exceeding $10 billion, 36 percent with annual revenues in the $1 billion to $10 billion range, and 56 percent with revenues in the $100 million to $1 billion range.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.

Building Design+Construction's monthly Market Intelligence Report offers a snapshot of the health of the U.S. building construction industry, including the commercial, multifamily, institutional, and industrial building sectors. This report tracks the latest metrics related to construction spending, demand for design services, contractor backlogs, and material price trends.

MFPRO+ New Projects | Apr 16, 2024

Marvel-designed Gowanus Green will offer 955 affordable rental units in Brooklyn

The community consists of approximately 955 units of 100% affordable housing, 28,000 sf of neighborhood service retail and community space, a site for a new public school, and a new 1.5-acre public park.

Construction Costs | Apr 16, 2024

How the new prevailing wage calculation will impact construction labor costs

Looking ahead to 2024 and beyond, two pivotal changes in federal construction labor dynamics are likely to exacerbate increasing construction labor costs, according to Gordian's Samuel Giffin.

Mexico’s TecSalud Health Sciences Campus is under design

Healthcare Facilities | Apr 16, 2024

Mexico’s ‘premier private academic health center’ under design

The design and construction contract for what is envisioned to be “the premier private academic health center in Mexico and Latin America” was recently awarded to The Beck Group. The TecSalud Health Sciences Campus will be located at Tec De Monterrey’s flagship healthcare facility, Zambrano Hellion Hospital, in Monterrey, Mexico.

Market Data | Apr 16, 2024

The average U.S. contractor has 8.2 months worth of construction work in the pipeline, as of March 2024

Associated Builders and Contractors reported today that its Construction Backlog Indicator increased to 8.2 months in March from 8.1 months in February, according to an ABC member survey conducted March 20 to April 3. The reading is down 0.5 months from March 2023.

Laboratories | Apr 15, 2024

HGA unveils plans to transform an abandoned rock quarry into a new research and innovation campus

In the coastal town of Manchester-by-the-Sea, Mass., an abandoned rock quarry will be transformed into a new research and innovation campus designed by HGA. The campus will reuse and upcycle the granite left onsite. The project for Cell Signaling Technology (CST), a life sciences technology company, will turn an environmentally depleted site into a net-zero laboratory campus, with building electrification and onsite renewables.

Codes and Standards | Apr 12, 2024

ICC eliminates building electrification provisions from 2024 update

The International Code Council stripped out provisions from the 2024 update to the International Energy Conservation Code (IECC) that would have included beefed up circuitry for hooking up electric appliances and car chargers.

Urban Planning | Apr 12, 2024

Popular Denver e-bike voucher program aids carbon reduction goals

Denver’s e-bike voucher program that helps citizens pay for e-bikes, a component of the city’s carbon reduction plan, has proven extremely popular with residents. Earlier this year, Denver’s effort to get residents to swap some motor vehicle trips for bike trips ran out of vouchers in less than 10 minutes after the program opened to online applications.

Laboratories | Apr 12, 2024

Life science construction completions will peak this year, then drop off substantially

There will be a record amount of construction completions in the U.S. life science market in 2024, followed by a dramatic drop in 2025, according to CBRE. In 2024, 21.3 million sf of life science space will be completed in the 13 largest U.S. markets. That’s up from 13.9 million sf last year and 5.6 million sf in 2022.